A Forced Rethink

A ceremony took place a month ago in the South Korean port of Ulsan that for the current Ukrainian situation carries heavy weight. Lithuanian President Dalia Grybauskaite christened there an enormous storage vessel, named Independence, which the Norwegian company Hoegh LNG and the Korean company Hyundai built after an order from the Lithuanian government. At the end of the year Independence will dock on the banks of the Lithuanian port of Klaipeda, becoming a floating terminal for receiving liquefied gas. Lithuania should then become truly independent of the monopolistic and overpriced supplies from Russia’s Gazprom. Lithuanians are now paying about one-third more for their gas than is the norm in other EU countries.

At the end of this year, the Poles are also set to complete a long-planned project for a terminal for liquefied gas and have already contracted gas supplies from Qatar. So, they, too, will get some relief from Russian pressure. However, as there are no connecting pipes, they will not be able to export the gas to their Central European neighbors.

The debate about EU sanctions against Russia is a sensitive topic among European economists and entrepreneurs, especially those in the EU states of Central Europe, which are extremely dependent on Russian gas and other raw materials.

But it’s not just about raw materials. Russia and Ukraine are, for Polish, Czech, and Hungarian manufacturers, important and growing markets. For example, shares of the Hungarian pharmaceutical producer Richter Gedeon have sharply declined in the past month mainly because the Russian and Ukrainian markets are crucial for this company. For a while now, Polish and Lithuanian producers of meat and meat products have faced obstruction and import bans to the Russian market.

Even before the gas crisis in the winter of 2009, when Russian gas stopped flowing through Ukraine to Europe, the critics of Russia among Central European politicians earned the label of being Russophobes, not worth listening to. Polish President Lech Kaczynski, who died in an April 2010 plane crash, was the last to push hard in the EU on the subject of energy security in relation to Russia.

The debate about sanctions against Moscow has reopened the subject of economic relations with Russia. On the one hand it’s a tempting marketing – in a way irreplaceable for states hit hard by the financial crisis – but on the other, even without the escalation in Ukraine, an extremely risky one.

But by all indicators, it seems appropriate to use the past tense now when talking about those relations.

Even though, for example, the Hungarian government agreed with the Kremlin shortly before the Ukraine crisis on a loan to build two blocks of a nuclear power plant, it will be much more difficult for the political class and businesses to consider tying themselves more closely to the Russian market (and therefore the government). The political risk there has radically increased. And some Czech government ministers are already talking about how, under the current situation, it is unthinkable that the Russian-Czech consortium MIR.12000 would build two new blocks of the Czech nuclear power plant Temelin.

Gas pipelines among Poland, the Czech Republic, and Slovakia will not be built in a month, just as Polish meat manufacturers or Hungarian pharmaceutical companies within that time will not find new markets to replace the Russian ones. But the Russian advance on Ukraine and the more or less open aggression in the spirit of old realpolitik have undoubtedly forced economists and entrepreneurs to start to think about strategic and long-term issues.

Similarly, German companies, which often have a number of major suppliers in Central Europe, are rethinking their engagement in the East. Last week, Chancellor Angela Merkel downplayed the damage that trade disruption with Russia would cause to German businesses, comparing her country’s 76 billion euros ($106 billion) trade with Russia to that with the much smaller Czech Republic, worth more than 60 billion euros.

“It [Russian business] shows a certain size but it is not large enough to have an impact on the whole German economic engagement,” she said. She was backed up by representatives of German business groups.

Merkel thus strengthened the hand of those who argue that EU members will feel the hit from any Russian economic retaliation for EU sanctions, but that it will be only short-term. The Russian economy would suffer more in the long term. With his threats of nationalizing the assets of EU companies in Russia, the Russian president is testing how soft or how hard Europeans want to be or know how to be toward Russia.

In the current crisis the Lithuanian president belongs among the loudest critics of Russia. The tough Russian approach forced Vilnius to act, secure itself a source of gas, and not just wait until all the Baltic countries agreed on the shared construction of an LNG terminal and the project received support from Brussels. Lithuanians know that it is necessary to go from words to actions. This is why Independence is waiting a tumultuous welcome in Klaipeda.

Martin Ehl is the foreign editor of the Czech daily Hospodarske noviny, where this column originally appeared. He tweets at @MartinCZV4EU.